The International Longevity Centre-UK (ILC-UK) has urged mortgage providers to better understand, and respond to, the increasing numbers of retirees taking loans into retirement.
Speaking at a conference organised by the Council of Mortgage Lenders, the ILC-UK Director, David Sinclair says the industry must ensure they do not discriminate on basis of age alone. Sinclair also urged older people to think very carefully before looking to “buy to let” to give them a return on their pension savings.
Sinclair welcomed the work being done by the Council of Mortgage Lenders (CML) on this topic and urged the industry body to continue to work with providers to ensure they are better equipped to respond to the challenges of demographic change.
Since 2010, both the number and percentage of mortgages extending into retirement has increased. The ILC-UK presentation draws on five years of research into secured and unsecured debt published by the charity. In late 2013, ILC-UK published a report by the Personal Finance Research Centre on the mortgage debt of older households and the effect of age. The report found that one in five of all households (21 per cent) headed by someone aged 50 or over had outstanding mortgage borrowing on their main home in 2008-10. One in ten older households (65+) had outstanding mortgage borrowing on their main residence while 65-69 year old households with mortgage debt still owed on average GBP55,200.
They also found that 13 per cent of all older mortgaged households were struggling to repay their mortgage.
More than one third of those aged over 70 with outstanding borrowing had an unlinked interest only mortgage
ILC-UK research in 2014 revealed that the average housing wealth of retirees is GBP122,000 or GBP1.4 trillion in total.
While lending criteria has been tightened across the board as a consequence of first the credit crunch and then the MMR, ILC-UK argue that this may not fully explain the rising numbers of people who appear to be excluded from the mortgage market purely on the basis of age.
Sinclair also warns older people of the risks of splashing their pension pot on buy to let properties. Sinclair points out that property investments can be risky and they do not guarantee returns. ILC-UK analysis has shown that in the 1990s it took 50 quarters for inflation adjusted house prices to regain their losses in value. Outside the South East and London, UK house prices in many areas remain below inflation adjusted 2007 levels.
Sinclair says: “The industry and the regulatory environment have been seemingly struggling to respond to ageing and demographic change. We are, however, very pleased to see that the industry have begun to respond to these challenges through the important work being led by the CML.
We are living longer, our family structures are changing, we are marrying later and we are working longer. At the same time, financial insecurity will result in more people needing to borrow more and later in life.
We should be particularly worried about those retirees with interest only mortgages but no linked investment.
Whilst the introduction of “pension freedoms” could be a boon to the buy to let sector, older people should make sure they take advice before making the jump.
With older people holding almost GBP1.4 trillion in wealth in their homes, equity release is going to be an attractive way of supplementing a pension for many.
The industry needs to ensure that the income poor asset rich pensioners are well served by this market. That said, the recent growth in the number of people aged 55-64 taking equity release is potentially very worrying.”
In the presentation, Sinclair urges the industry to lend responsibly but not arbitrarily refuse loans on the basis of age alone. He also calls on the industry and Government to work to address the fear of borrowing faced by many income poor, asset rich customers.
Sinclair says Government and industry must work together to ensure that individuals have access to advice. He also urges Government to push ahead with housebuilding plans to ensure that older people have more options to move to more appropriate homes.
